Q&A: Financial analyst Michael Pachter

With the dust from last week's IEMA summit just now subsiding, we asked a financial expert to grade retailers on how well they promote the industry's wares.

Bringing more than 20 years of experience in the financial sector to his current role of senior vice president of research at Wedbush Morgan Securities, Michael Pachter is one of those “when he talks, people listen” professionals. He is an oft-quoted analyst whose comments regularly appear in GameSpot, The Wall Street Journal, Reuters, and Bloomberg articles. His words can cut to the core--which is one of the reasons the industry pays him heed.

Although he wasn't in attendance at last week's IEMA Executive Summit, we asked Pachter to comment on the retail environment, as we did with Sony Pictures' Yair Landau and IEMA president Hal Halpin.

GameSpot: Michael, combined revenue from hardware and software is on the rise, yet other entertainment segments compete very competently for dollars spent on entertainment. How can retailers be smarter when it comes to making games a more attractive purchase?

Michael Pachter: I think that retailers have done a relatively poor job of communicating the value proposition of video games. The average game takes a mere mortal something like 20 to 100 hours to complete, and many may be played repeatedly (as with Madden Football) with a different outcome every time. Games compare quite favorably to other entertainment media when viewed in terms of playtime.

GS: How can retailers turn the increased sale of used games into a net win for the industry--or will publishers always suffer dollars lost, based on disposable income diverted toward used titles?

MP: The used market is a net win. Used games have been for sale as long as there has been a rental market (where do you think all those “previously played” games went?). Though there may be some migration of new game dollars going toward used, there is a bigger market of lower socioeconomic class spending that will pay for used games, but won't buy new games. The sale of used games by consumers creates currency that will allow them to buy more new games. It’s called velocity (and you should have learned about it in microeconomics!).

GS: With facings at a premium, the life span of a console ever increasing, and a propensity for fewer titles to be driving a higher percentage of the revenue stream, what boost or promotion should retailers be giving high-quality, but less than triple A products?

MP: Retailers should focus on what sells. The publishers should focus on making fewer, higher quality games, and many have begun to do so. I think that this is a question of survival of the fittest, and I think that facings will always go to the highest turnover merchandise. The good thing about the proliferation of titles is that it allows high-quality games to be sold for $20 or less--the Sega sports games are a good example.

GS: What do retailers just not get about meeting the needs of consumers or meeting their expectations?

MP: Retailers as a group seem to focus on what sold last year. Consumers are fickle, and it’s tough to gauge what they will respond to. I think that the specialty retailers do a great job addressing the needs of consumers, and I think that the mass merchants serve a need to carry the “hottest” games. Consumers are sophisticated enough to know where to shop.

GS: What will further drive the widening age profile of the interactive game consumer?

MP: The widening age profile is a fact (see my industry report, The Definition of Insanity). In brief, it’s a function of games becoming more socially acceptable as computers and technology become more widespread. Game proficiency is worn as a badge of honor by parents of small children, in stark contrast to the shame they experienced years ago. Games can teach hand-eye coordination, spatial reasoning, computer skills, strategy, and sportsmanship, among other skills. As long as parents believe this, they will increasingly encourage their children to play. As long as publishers provide compelling content, kids will play well into adulthood.

GS: Thanks, Michael.

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